Investors Brace for Big Tech Earnings Showdown

Big tech has seen its dominance over the markets increase this year thanks to growing earnings, but can that momentum continue through the end of the year?

The Focus Is on The Big Leaders

Nearly all of the S&P 500's growth this year has been thanks to just seven stocks, the biggest among them being Apple, Microsoft and Alphabet, due to report over the coming days. For this reason, there is likely to be outside attention on these major firms. This outsized so-called "Magnificent 7" has come with increasing costs as they are trading at a P/E ratio of 33.5, compared to the S&P 500's average of 18.3, a situation that becomes even riskier with the relatively high interest rates attracting investors. It's now up to their expected earnings to justify the high valuations and whether they can keep up the pace.

Microsoft will report on Tuesday, with earnings expected at $2.59 on $55.0B in sales, a slight quarterly decline on the top and bottom line. Focus is likely to remain on the AI driver for the stock gain through the first part of the year, with the potential for guidance adjustment now that the company has completed its acquisition of Activision-Blizzard.

Alphabet will also report on Tuesday and is expected to have a slight decline in earnings on a quarterly basis to $1.36 on $74.7B in revenue. The focus will likely be on the company's reliable growth sectors of cloud and search, with questions about spend on bolstering AI capabilities, as the company's search market dominance remains strong.

Meta will report earnings on Wednesday, with earnings expected to be largely unchanged compared to the prior quarter at $3.04 and revenue seen at $31.2B. The resilience of advertising spend is seen as supporting the company. The X (former Twitter) rival Threads is expected to not feature as prominently this time around, despite analysts still being optimistic about its growth potential.

Amazon will report on Thursday, with earnings expected to be lower unless there is a massive beat like last quarter. The company is expected to report a bottom line of $0.41 on $138.3B in sales, and as usual, Amazon Prime Day posted record sales, growing 6.1% in the US, which is seen contributing alongside AWS, which will be in renewed focus as the cloud division has seen its growth slowing.

S&P Near Wedge Bottom

The S&P 500 has retested 4200, but prices reversed lower again after failing to get past 4400, pending further declines to complete a potential wedge pattern towards 4100. Breaking the lower trendline could instigate further pain, bringing the focus to the 4k handle. Without recapturing at least 4340, prospects will remain largely tilted to the downside, with a potential takeover of the second peak resistance paving the way to 4540.

Source: SpreadEx/SPX500

Key Takeaways

Big tech giants Microsoft, Alphabet, META and Amazon are set to report their earnings. These companies have been driving the growth of the S&P 500 this year, with their dominance over the markets increasing. However, their high valuations and the rise in interest rates make their performance crucial to justify their stock prices. Investors will closely watch Microsoft's AI-driven growth, Alphabet's reliable sectors of cloud and search, Meta's advertising resilience, and Amazon's record sales from Prime Day and the performance of its AWS cloud division.